9 November 2017

Q2FY18 Results Update | Sector: Automobiles

Ashok Leyland
BSE SENSEX S&P CNX
33,219 10,303
CMP: INR115 TP: INR134(+17%) Buy
Bloomberg AL IN RM inflation, lower Pantnagar incentives, and discounts hurt margins
Equity Shares (m) 2,927  Higher volumes and realizations drive revenues: AL’s revenues grew 30.8%
M.Cap.(INRb)/(USDb) 349.0 / 5.4
YoY to INR60.5b (our estimate: INR61.3b), driven by volume growth of
52-Week Range (INR) 133 / 74
1, 6, 12 Rel. Per (%) -9/28/10 22.6% YoY (and 44% QoQ) and realization growth of 6.7% YoY (decline of
Avg Val, INRm 1,117.2 0.8% QoQ) to INR1.47m (our estimate: INR1.49m). Apart from price hikes
Free float (%) 48.7 related to BS-4, AL has not taken any price increase in 1HFY18.
 RM inflation, low fiscal incentives, and discounts impact margins: EBITDA
Financials & Valuations (INR b) margin fell 150bp YoY (but expanded 290bp QoQ) to 10.1% (our estimate:
Y/E Mar 2017 2018E 2019E
10.6%) due to higher commodity prices, heavy discounting, lower incentives
Net Sales 200.2 244.0 289.2
at Pantnagar under GST (~50bp impact) and low margins on BS-3 exports.
EBITDA 22.0 24.1 30.8
13.3 13.2 18.2
However, lower other expenses diluted the impact of RM cost. EBITDA grew
PAT
EPS (INR) 4.6 4.5 6.2 14% YoY to INR6.1b (our estimate: INR6.5b). Other income was INR0.6b,
Gr. (%) 8.0 -1.5 38.7 higher than our estimate of INR0.4b. Adjusted PAT declined 59% YoY to
BV/Sh (INR) 20.9 23.0 26.5 INR1.2b (our estimate: INR2.07b).
RoE (%) 23.1 20.4 25.2  Key takeaways from conference call: (a) Outlook: CV industry to grow 5-
RoCE (%) 21.8 17.4 21.2 10% in FY18. AL to grow in line with industry. (b) Incremental RM cost
P/E (x) 25.3 25.7 18.5
pressure yet to reflect in P&L. Price increase of 1% from November 2017 in
P/BV (x) 5.5 5.0 4.4
some models. (c) 85-90% of AL’s volumes are iEGR-based. (d) In Hinduja
Foundries, recovery continued, with EBITDA margin of 8.5% in 2QFY18. (e)
LCV business turned PBT positive for the first time; EBITDA margin at 8-9%.
Estimate change
(f) Discounts at high levels (~INR350k, stable QoQ), with competition
TP change offering ~INR100k/unit higher than AL.
Rating change Valuation and view: We downgrade FY18/FY19E EPS by 16%/11%, as we factor
in (a) lower margins by 80bp/40bp, and (b) increase in depreciation. We value AL
at ~INR134 [11x September 2019E EV/EBITDA + INR12/share for stake in HLF
post 20% HoldCo discount]. Maintain Buy.

Quarterly Performance
(INR Million) FY17 FY18 FY17 FY18E FY18 Var.
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE 2QE (%)
Total Volumes (nos) 31,165 33,441 32,838 47,622 28,484 40,985 43,764 50,755 145,066 163,988 40,985 0.0
Growth % 10.7 -10.5 6.2 8.5 -8.6 22.6 33.3 6.6 3.4 13.0 22.6
Realizations (INR '000) 1,367 1,382 1,375 1,390 1,488 1,475 1,468 1,515 1,380 1,488 1,495 -1.3
% change -0.9 4.0 3.4 2.1 8.9 6.7 6.7 9.0 2.3 7.8 8.2
Net operating revenues 42,588 46,224 45,163 66,179 42,378 60,469 64,246 76,911 200,187 244,004 61,281 -1.3
Change (%) 9.7 -6.9 9.8 10.8 -0.5 30.8 42.3 16.2 5.7 21.9 32.6
RM/sales % 68.7 67.8 69.4 71.9 69.4 71.2 71.5 71.4 69.7 71.0 70.3 90bp
Staff/sales % 8.4 8.0 8.7 6.2 10.3 8.0 7.3 6.3 7.6 7.7 7.4 60bp
Other exp/sales % 11.6 12.6 11.8 10.8 13.0 10.7 11.2 11.2 11.6 11.4 11.8 -110bp
EBITDA 4,820 5,365 4,542 7,299 3,061 6,118 6,413 8,526 22,025 24,117 6,477 -5.5
EBITDA Margins(%) 11.3 11.6 10.1 11.0 7.2 10.1 10.0 11.1 11.0 9.9 10.6 -50bp
Other Income 385 316 258 404 384 557 475 434 1,363 1,850 425 31.0
Interest 338 339 453 423 366 410 425 393 1,554 1,595 300 36.7
PBT before EO Item 4,154 4,146 2,396 6,114 1,730 4,826 5,038 7,109 16,809 18,704 5,262 -8.3
EO Exp/(Inc) 0 0 0 3,508 126 0 0 0 3,508 126 0
PBT 4,154 4,146 2,396 2,605 1,605 4,826 5,038 7,109 13,301 18,579 5,262 -8.3
Effective Tax Rate (%) 30.0 29.0 32.5 - 30.7 30.7 30.0 29.3 8.0 30.0 28.0
Adj. PAT 2,908 2,944 1,618 4,279 1,199 3,342 3,527 4,977 13,447 13,093 3,787 -11.7
Change (%) 130.0 14.5 -25.6 -16.5 -58.7 13.5 118.0 16.3 11.6 -2.6 28.6
E: MOSL Estimates
Jinesh Gandhi – Research Analyst (Jinesh@MotilalOswal.com); +91 22 3982 5416
Deep Shah – Research Analyst (Deep.Shah@MotilalOswal.com) | Suneeta Kamath – Research Analyst (Suneeta.Kamath@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Ashok Leyland

Volumes and realization growth drive revenues

 AL’s volumes increased by 22.6% YoY (+43.9% QoQ) as overall MHCV volumes
grew 23.9% YoY (+58% QoQ) while LCV volume increased 22.5% YoY (+43.8%
QoQ).
 AL’s market share in domestic M&HCV segment at 33.6% (+30bp YoY, -105bp
QoQ) while in LCV segment its share stands at 7.6% (-40bp YoY, -40bp QoQ) as
in 2QFY18. Its M&HCV market share for 1HFY18 remain at 34.2%.
 AL indicated that despite success of iEGR technology for BS-IV vehicles, its
market share declined QoQ due to higher discounting.
 Realizations increased by 6.7% YoY (-0.8% QoQ) to INR1.47m/unit (v/s est. of
~INR1.49m/unit). AL has not taken any price increase during 1HFY18. However,
indicated price increase of ~1% in some truck models.
 Consequently, revenues increased by 30.8% YoY (+42.7% QoQ) to INR60.5b (est
61.3b).

Exhibit 1: MHCV sales increase YoY and QoQ Exhibit 2: MHCV volume increased 24% YoY

70.6
MHCVs (units)

64.2
MHCV Growth (%)

43.9
39.5

34.2
27.0

23.9
38,643

14.3
35,249

12.0
31,397

9.6
9.1
29,872

5.0
(10.5)

0.1

(15.2)

(17.3)
26,262

(20.2)
25,341
25,284

(23.3)
24,027

(24.9)
23,603

(26.4)
23,176

(27.1)
(29.0)
21,453
21,175
20,239

19,866
14,681

14,897
15,913
10,698
18,829
14,908
18,187
18,252
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18

1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
Source: Company, MOSL Source: Company, MOSL

Exhibit 3: MHCV contribution increased to 77% Exhibit 4: Realizations remain stable QoQ
MHCV Dost Realization (INR '000/unit)

58
74 71 65 68 69 69 72 75 72 72 77 76 80 76 82 77 76 77 81 70 77
1,488
1,475
1,390
1,382
1,379

1,375
1,367
1,361
1,330
1,329
1,323
1,319
1,268
1,243
1,094
1,105
1,050
1,077
1,088
1,103
1,062
1,181

42
26 29 35 32 31 31 28 25 28 28 23 24 20 24 18 23 24 23 19 30 23
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18

Source: Company, MOSL Source: Company, MOSL

RM inflation, discounts, low Pant Nagar benefits led to EBITDA margin miss
 Gross margins declined 340bp YoY (-180bp QoQ) to 28.8% as cost input cost
increase put pressure on RM costs. Also, higher discounts (similar as 1QFY18),
decline in tax incentives from Pant Nagar Plant due to GST (~50bp impact) and
lower margins on exports of BS-3 trucks also impacted gross margins.
 EBITDA came in at INR 6.1b (lower than est INR6.5b), increasing 14% YoY
(+100% QoQ), translating into EBITDA margins of 10.1% (-150bp YoY, +290bp
QoQ).

9 November 2017 2
 Ashok Leyland

 Hinduja Foundries recovery continued with EBITDA margin of 8.5% in 2QFY18.

The LCV business (including 3 subsidiaries) also turned PBT positive and has
EBITDA margin of 8-9%.
 Other income was higher at INR557m (est INR425m), while effective tax rate
was higher than expected at 30.7% (est 28%).
 Adjusted PAT increased 13.5% YoY to INR3.3b (est INR3.8b).

Exhibit 5: RM inflation, discounts, low Pant Nagar incentive Exhibit 6: RM cost increases QoQ due to rise in steel prices,
and exports margin led to EBITDA margin contraction YoY expect 3Q to also see cost inflation pressure
EBITDA (INR m) EBITDA Margins (%) 74.5 RM (% of net sales)
12.6 13.1 73.3 73.6 72.8
10.9 11.3 11.6 11.0
10.1 10.1 10.1 10.1 71.9
7.2 71.2
4.1 7.3 7.1 69.9 70.4 69.4 69.4
69.7 68.7
67.8
68.4
2,381

6,240
4,493
7,835
4,820
5,365
4,542
7,299
3,061
6,118
2,343

3,925
4,571
1,005

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18
Source: Company, MOSL Source: Company, MOSL

Exhibit 7: Interest costs increases QoQ and YoY Exhibit 8: Inventory remain stable QoQ at 8.8k units

11,500
12,300
Interest Cost (INR m) Trend in Inventory (Units)
1,063

1,007

9000
982

8,500

8800
7,887
882

7,650

6,500
6,445
5,800
701

5,300
5,000
631
603
541

3,800
3,700
453
423

410
366
339
338
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18

1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
Source: Company, MOSL Source: Company, MOSL

Highlights from the earnings call

 Positive outlook maintained: Domestic CV industry to grow 5-10% in FY18, led
by improving macro situation. AL to grow in line with industry. 3QFY18 to be a
good quarter, but 4QFY18 to have adverse base due to pre-buying in 4QFY17.
 iEGR technology has settled well with customers after initial hiccups. This has
helped AL gain market share in the domestic CV space. 85-90% of AL’s volumes
are iEGR-based.
 Price hike: AL has not taken any price hike during 1HFY18, except BS-IV related
price increase of 8-10%. However, AL took a price hike of ~1% in November to
pass on RM cost increase. Discounts remain high at INR350k on trucks (similar to
1Q). Competitors are offering INR100k higher discounts. AL stayed away from
few deals due to very high discounts.
 HFL: Hinduja Foundries (HFL) turned EBITDA positive, with EBITDA margin of
8.5% in 2QFY18.

9 November 2017 3
 Ashok Leyland

 LCVs: LCV business (including three subsidiaries) at EBITDA margin of 8-9%. Has
turned PBT positive for the first time. Plans to launch 6-7 new products in next
12 months.
 Overloading ban in Rajasthan & Uttar Pradesh (UP) boosting demand. Other
states are looking at stricter implementation of overloading ban.
 BS-III inventory: AL has converted ~85% of total ~12k inventory. ~2k units have
been exported and another ~1,500 units would be exported in due course.
 Exports witnessing good profits from Africa and Middle East markets.
Neighboring markets such as Sri Lanka and Bangladesh less profitable.
 GST: Savings in transit time will only have positive impact on CV demand.
 Capex: INR5b-6b per annum for balancing/debottlenecking capex. Not looking
at any greenfield capacity expansion in the near term.
 Net debt of INR21.3b (0.3x equity). Increase in debt over March 2017 levels is
largely due to higher working capital requirement, which is expected to
normalize in due course.

Valuation and view

 Short term impediments to M&HCV demand, expect recovery from 2HFY18:
Domestic M&HCV demand was flat in FY17 partly impacted by high base of
1HFY16 (ABS related pre-buying) and demonetization. While there are near term
impediments like uncertainty due to GST implementation, significant cost inflation
in CVs due to BS4 and commodity cost and slower recovery in freight availability.
However, normal monsoon would drive demand from Agri goods, pick-up in
infrastructure and mining gives visibility of recovery in 2HFY18. Any regulation on
scrappage and/or overloading will be game changer for CV demand.
 AL’s focus on new growth areas to drive strong revenue growth: AL is highly
focused on making business acyclical by reducing India truck business revenues
to 50% in 5 years (from ~70% currently), by growing share of LCVs, Exports,
Spare parts and Defence. This will not only reduce dependence on domestic
trucks, but also drive strong revenue growth. We find merit in its strategy to
reduce dependence on the Indian truck business, though we expect it to play
out in medium term.
 Expect sharp improvement in operating performance: With recovery in
demand coupled and ramp-up in newer focus areas, coupled with cost reduction
measures, we expect fixed cost (as percentage of sales) to reduce meaningfully,
off-setting impact of HFL and adverse mix (initially). We estimate EBITDA
margins to remain at ~19.6% in FY17-20E.
 Aggressive focus on curtailing debt and generating cash: To emerge leaner and
stronger from the downturn, AL has focused on generating cash and curtailing
debt through working capital reduction, controlled capex and monetizing non-
core assets. Further, capex (incl. Investment) for FY18 is expected to be at INR6b
(v/s~INR5.7b for FY17 v/s ~INR2.2b for FY16 v/s 15.4b in FY13). This has helped
AL to turn net-cash company (~INR2b) in 4QFY17. However, HFL merger resulted
in net debt of ~INR4b (v/s ~INR11.5b for FY16 v/s ~INR26b in FY15).
 Valuation and view: We downgrade FY18/FY19 EPS by 16%/11% respectively, as
we factor in for a) lower margins by 80bp/40bp to factor in for reduction in
incentives at Pantnagar plant (valid till Mar-20), b) higher depreciation and c)
higher tax. We value AL at ~INR134 [11x Sep-19 EV/EBITDA + INR12/sh for stake
in HLF post 20% HoldCo Discount]. Maintain Buy.

9 November 2017 4
 Ashok Leyland

Exhibit 9: Revised Forecast

(INR M) FY18E FY19E
Rev Old Chg (%) Rev Old Chg (%)
Volumes (units) 163,988 165,368 -0.8 185,338 187,056 -0.9
Net Sales 244,004 248,369 -1.8 289,177 292,195 -1.0
EBITDA margins (%) 9.9 10.7 -80bp 10.7 11.1 -40bp
Net Profit 13,131 15,614 -15.9 18,211 20,555 -11.4
EPS (INR) 4.5 5.3 -15.9 6.2 7.0 -11.4
Source: MOSL

Exhibit 10: Valuations trading at historical average, reflecting improving fundamentals

P/E (x) Avg (x) Max (x) P/B (x) Avg (x) Max (x)
92.0 Min (x) +1SD -1SD
6.0 5.2
77.0 75.7 5.2

62.0 3.9
4.0
47.0 2.7
26.3
32.0 23.8 2.0 1.4
17.6
17.0 8.8
4.8 0.7
2.0 0.0
Jul-11

Jul-16

Jul-11

Jul-16
Apr-10

Apr-15

Apr-10

Apr-15
Jan-09

Jan-14

Jan-09

Jan-14
Oct-07

Oct-12

Oct-17

Oct-07

Oct-12

Oct-17
Source: MOSL Source: MOSL

Exhibit 11: Comparative Valuation

CMP TP P/E (x) EV/EBITDA (x) RoE (%) Div Yield (%) EPS CAGR (%)
Auto OEM's (INR)* Rating (INR) FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E FY17-19E
Bajaj Auto 3,200 Buy 3,753 22.0 18.3 16.6 13.2 23.3 25.3 2.0 2.5 15.0
Hero MotoCorp 3,604 Neutral 3,819 19.7 18.6 12.4 11.7 33.7 31.1 2.5 2.5 7.1
TVS Motor 695 Neutral 764 46.5 26.9 29.3 17.6 26.5 35.6 0.4 0.6 48.3
M&M 1,362 Buy 1,585 19.6 16.7 14.7 12.7 13.5 14.3 1.5 1.5 22.7
Maruti Suzuki 8,202 Buy 9,466 28.5 21.5 17.6 13.8 20.5 23.0 1.0 1.2 23.8
Tata Motors 440 Buy 563 20.8 7.2 5.0 2.9 11.6 27.3 0.1 0.1 75.9
Ashok Leyland 115 Buy 134 25.7 18.5 12.7 9.4 20.4 25.2 1.7 1.9 16.9
Eicher Motors 30,820 Buy 36,487 37.3 27.5 28.4 23.0 36.1 36.4 0.5 0.6 35.2
Auto Ancillaries
Bharat Forge 719 Buy 844 37.6 27.6 20.6 16.5 20.1 23.2 0.6 0.7 41.0
Exide Industries 202 Buy 254 25.6 20.9 15.2 12.6 12.5 13.7 1.1 1.1 9.1
Amara Raja Batteries 735 Buy 854 28.7 22.3 15.5 11.9 15.8 17.7 0.5 0.7 8.4
BOSCH 21,103 Neutral 22,781 39.0 30.2 24.1 18.8 17.8 20.5 0.9 1.1 21.5
Endurance Tech 1,152 Buy 1,229 38.9 29.3 18.5 15.3 21.8 24.0 0.3 0.6 29.3
Source: Company, MOSL

9 November 2017 5
 Ashok Leyland

Ashok Leyland | Story in Charts: Best play on CV cycle recovery

Exhibit 1: Al’s market share gain continues… Exhibit 2: …without diluting pricing

M&HCV Dom. Market Share (%) 34.2 Total volume (units) ASP (INR '000/unit)
33.9
32.7 1,639
1,488 1,560
1,293 1,349 1,380
1,255
28.7 1,133 1,188 1,089 1,113
25.7 26.1 25.7
23.6

64 94 103 115 89 105 140 145 164 185 208

1HFY18
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E
Source: Company, MOSL Source: Company, MOSL

Exhibit 3: Revenue to grow at 19.3% CAGR over FY17-20E Exhibit 4: Margins to remain range bound in FY17-20E
Revenues (INR m) Growth (%) EBITDA (INR b) EBITDA Margins (%)
36.4 39.6 11.9
11.0 10.7 11.1
21.9 18.5 17.7 9.9
5.7 7.6
(3.3) 7.0
(20.3)

1.7
124,812

135,622

189,373

200,187

244,004

289,177

340,251
99,434

8,765 10,266 22,546 22,026 24,117 30,825 37,694

1,666
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Source: Company, MOSL Source: Company, MOSL

Exhibit 5: Capex/investments to moderate significantly Exhibit 6: Focused on reducing debt levels

CFO Capex (incl Invest) FCF Net debt (INR b)
30
43 47
24 25 32 -46
25
21 15 -10 -26
19 25 4 -4
18 18
8 6 4 10 23 31 37
-1 1 -15 1
5 -7 -7
-12
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

-4
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Source: Company, MOSL Source: Company, MOSL

9 November 2017 6
 Ashok Leyland

Financials and Valuations

Key operating metrics
Income Statement (INR Million)
Exhibit
Y/E Mar1: Snapshot of revenue model 2013 2014 2015 2016 2017 2018E 2019E 2020E
000 Sales
Net units 124,812 FY11
99,434 FY12
135,622FY13 189,373
FY14 FY15
200,187 FY16 FY17 289,177
244,004 FY18E 340,251
FY19E
HCV Passenger
Change (%) (units) 0.0 25
0.0 26 0.0 23 0.019 210.0 26 0.0 23 0.0 25 0.028
Growth
EBITDA (%) 8,765 36.5
1,666 2.2
10,266 -8.9 -18.0
22,546 7.7
22,026 24.1 -12.1
24,117 30,825 12.5 10.0
37,694
HCV Goods (units) 68 68 0.0 55
EBITDA Margin (%) 0.0 0.0 0.041 570.0 84 0.0 91 0.0 97 107
0.0
Growth (%) 53.4 0.4 -18.8 -26.1 39.0 47.6 7.9 7.0 10.0
Depreciation 3,808 3,770 4,163 4,879 5,179 5,615 6,140 6,596
LCVs (units) 1 1 1 0 2 1 0 10 15
EBIT 4,957 -2,105 6,103 17,667 16,847 18,503 24,684 31,098
Growth (%) -20.7 27.7 -29.7 -47.0 306.0 -13.1 -89.3 6,289.8 50.0
DOST (units) 0 8 35 28 25 29 31 34 35
Interest 3,769 4,529 3,935 2,476 1,554 1,595 1,595 1,345
Growth (%) 359.9 -20.0 -9.7 14.1 8.3 7.5 5.0
Other Income 624 665 1,245 1,176 1,363 1,850 2,560 3,613
Non-DOST JV (units) 0 0 0 1 0 0 0 1 1
Extraordinary
Growth (%) items 2,896 5,057 1,009 -8,152 -3,508 -126 0 0
0.0 -0.5 0.3 0.3 0.3 0.5
PBT
Total volumes ex Dost (units) 4,707 -912
94 954,422 80 8,21561 13,147
79 11118,632 113 25,650 132 33,366150
Tax
Growth (%) 370 -1,206
47.2 1,074 -16.3 4,369
1.1 -23.9 1,070
30.9 40.25,574 2.0 7,43816.8 9,342
13.0
TaxVolumes
Total Rate (%) incl Dost (units) 7.9 132.2
94 10324.3 115 53.289 1058.1 140 29.9 145 29.0 167 28.0
186
Min. Int.
Growth (%) & Assoc. Share 0 47.20 9.2 0 11.5 0
-22.1 17.4 0 33.8 0 3.4 014.8 0
11.5
Reported PAT
ASP (INR ’000/unit) 4,337 294
1,188 1,2553,3481,089 3,845
1,113 12,077
1,293 1,34913,059
1,380 18,211
1,515 24,023
1,573
Adjusted
Growth (%) PAT 1,669 -4,763 2,339 11,9982.2 13,325
16.1 13,184 2.3 18,211 9.8 24,023
4.4 3.8
NetChange (%) b)
Sales (INR 0.0 0.0
112 129 0.0 125 0.099 1360.0 189 0.0 200 0.0 252 0.0
292
Growth (%) 54.3 15.4 -3.3 -20.3 36.4 39.6 5.7 26.1 15.8
Balance Sheet (INR Million)
Y/E Mar 2013 2014 2015 2016 2017 2018E Source: Company,2020E
2019E MOSL
Share Capital 2,661 2,661 2,846 2,846 2,927 2,927 2,927 2,927
Reserves 41,890 41,818 49,002 51,226 58,334 64,298 74,588 89,809
Net Worth 44,551 44,479 51,848 54,071 61,261 67,224 77,514 92,736
Debt 43,554 46,903 22,953 20,201 13,450 18,450 13,450 13,450
Deferred Tax 5,274 4,068 2,861 3,291 1,269 2,198 3,480 5,149
Total Capital Employed 93,379 95,450 77,662 77,563 75,979 87,872 94,444 111,334
Gross Fixed Assets 83,796 86,723 49,871 53,659 59,807 66,366 71,616 76,616
Less: Acc Depreciation 25,588 30,124 5,600 4,859 8,871 14,485 20,626 27,222
Net Fixed Assets 58,208 56,599 44,271 48,800 50,937 51,880 50,990 49,394
Capital WIP 6,889 1,815 1,201 759 2,059 1,500 1,250 1,250
Investments 23,376 27,897 26,967 19,804 28,789 22,017 23,517 25,017
Current Assets 47,883 41,769 59,308 60,992 56,210 79,681 97,912 128,372
Inventory 18,960 11,887 12,427 16,250 25,011 26,740 31,691 37,288
Debtors 14,194 12,990 7,262 12,511 8,601 14,707 15,845 18,644
Cash & Bank 139 117 7,722 15,931 9,120 28,875 39,285 59,390
Loans & Adv, Others 14,589 16,775 31,898 16,299 13,479 9,359 11,092 13,051
Curr Liabs & Provns 37,588 32,630 54,087 52,791 62,015 67,207 79,225 92,699
Curr. Liabilities 33,716 31,070 50,740 49,672 55,845 58,160 68,927 81,101
Provisions 3,872 1,560 3,347 3,119 6,169 9,047 10,298 11,598
Net Current Assets 10,295 9,139 5,222 8,201 -5,804 12,475 18,687 35,673
Total Assets 98,769 95,450 77,662 77,563 75,979 87,872 94,444 111,334

9 November 2017 7
 Ashok Leyland

Financials and Valuations

Ratios
Y/E Mar 2013 2014 2015 2016 2017 2018E 2019E 2020E
Basic (INR)
EPS 0.6 -1.8 0.8 4.2 4.6 4.5 6.2 8.2
Cash EPS 2.1 -0.4 2.3 5.9 6.3 6.4 8.3 10.5
Book Value 16.7 16.7 18.2 19.0 20.9 23.0 26.5 31.7
DPS 0.6 0.0 0.5 1.0 1.6 2.0 2.3 2.5
Payout (incl. Div. Tax.) 95.6 0.0 54.8 23.7 34.3 44.6 36.2 30.5
Valuation(x)
P/E 27.4 25.3 25.7 18.5 14.1
Price / Book Value 6.1 5.5 5.0 4.4 3.6
EV/Sales 1.8 1.7 1.3 1.1 0.9
EV/EBITDA 14.8 15.1 13.6 10.1 7.7
Dividend Yield (%) 0.9 1.4 1.7 1.9 2.2
Profitability Ratios (%)
RoE 3.9 -10.7 4.9 22.7 23.1 20.4 25.2 28.2
RoCE 5.9 0.5 6.4 11.4 21.8 17.4 21.2 24.3
RoIC 7.5 1.1 8.6 20.0 40.2 36.3 53.2 79.9
Turnover Ratios (%)
Fixed-Asset Turnover (x) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Debtors (No. of Days) 42 48 20 24 16 22 20 20
Inventory (No. of Days) 55 44 33 31 46 40 40 40
Creditors (No. of Days) 73 81 76 49 56 50 50 50
Leverage Ratios (%)
Net Debt/Equity (x) 1.0 1.1 0.4 0.4 0.2 0.3 0.2 0.1

Cash Flow Statement (INR Million)

Y/E Mar 2013 2014 2015 2016 2017 2018E 2019E 2020E
Adjusted EBITDA 6,097 -3,391 9,257 30,698 23,273 24,243 30,825 37,694
Non cash opr. exp (inc) 2,682 6,488 -363 -14,033 -558 1,724 2,560 3,613
(Inc)/Dec in Wkg. Cap. -350 3,701 7,049 -1,276 1,903 1,476 4,197 3,119
Tax Paid -1,100 -297 -502 -4,409 -3,476 -4,645 -6,156 -7,674
Other operating activities 218 -495 2,906 6,818 3,914 0 0 0
CF from Op. Activity 7,547 6,005 18,347 17,800 25,056 22,799 31,426 36,752
(Inc)/Dec in FA & CWIP -6,438 -2,071 -2,059 441 -7,168 -6,126 -5,000 -5,000
Free cash flows 1,109 3,935 16,288 18,241 17,888 16,673 26,426 31,752
(Pur)/Sale of Invt 0 0 0 0 0 0 0 0
Others -5,468 969 3,074 3,177 -11,108 6,772 -1,500 -1,500
CF from Inv. Activity -11,907 -1,102 1,015 3,618 -18,277 646 -6,500 -6,500
Inc/(Dec) in Net Worth 0 0 6,667 0 0 0 0 0
Inc / (Dec) in Debt 11,004 1,827 -14,239 -7,886 -8,827 5,000 -5,000 0
Interest Paid -3,742 -4,446 -4,219 -2,679 -1,638 -1,595 -1,595 -1,345
Divd Paid (incl Tax) & Others -3,092 -1,868 0 -1,541 -3,254 -7,041 -7,921 -8,802
CF from Fin. Activity 4,170 -4,486 -11,791 -12,107 -13,719 -3,636 -14,516 -10,147
Inc/(Dec) in Cash -190 417 7,571 9,311 -6,939 19,809 10,410 20,105
Add: Opening Balance 276 80 51 7,054 15,419 8,466 28,275 38,685
Closing Balance 80 490 7,634 16,389 8,466 28,275 38,685 58,790

9 November 2017 8
 Ashok Leyland

Corporate profile
Exhibit 1: Sensex rebased
Company description
Ashok Leyland (AL), the flagship company of
Hinduja Group, is the 2nd largest MHCV with ~26%
market share and the largest Bus manufacturer in
India. To expand its product offerings, AL has
entered into 50:50 JV with Nissan for LCVs and John
Deere for construction equipment.

Source: MOSL/Bloomberg

Exhibit 2: Shareholding pattern (%) Exhibit 3: Top holders

Sep-17 Jun-17 Sep-16 Holder Name % Holding
Promoter 51.3 51.3 50.4 LIFE INSURANCE CORPORATION OF INDIA 3.6
DII 10.5 9.5 8.7 GOVERNMENT PENSION FUND GLOBAL 2.3
FII 23.4 22.2 10.0 ABU DHABI INVESTMENT AUTHORITY (Under
1.2
various sub accounts)
Others 14.8 17.0 30.9
AMANSA HOLDINGS PRIVATE LIMITED 1.1
Note: FII Includes depository receipts Source: Capitaline JP MORGAN SICAV INVESTMENT COMPANY
1.1
MAURITIUS LIMITED
Source: Capitaline

Exhibit 4: Top management Exhibit 5: Directors

Name Designation Name Name
D G Hinduja Chairman A K Das Andreas H Biagosch
R J Shahaney Chairman Emeritus Andrew C Palmer D J Balaji Rao
Managing Director & Jean Brunol Manisha Girotra
Vinod K Dasari
CEO
Sanjay K Asher Shardul Shroff
N Ramanathan Company Secretary
Sudhindar Khanna

*Independent
Source: Capitaline

Exhibit 6: Auditors Exhibit 7: MOSL forecast v/s consensus

Name Type EPS MOSL Consensus
Variation (%)
(INR) forecast forecast
Geeyes & Co Cost Auditor
FY18 4.5 4.8 -6.3
M S Krishnaswami & Rajan Statutory
FY19 6.2 6.1 0.9
Price Waterhouse & Co Statutory
FY20 8.2 7.2 14.4
Source: Bloomberg

Source: Capitaline

9 November 2017 9
Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Ashok Leyland
Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock
broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed
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NOTES
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indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Disclosure of Interest Statement Ashok Leyland
Analyst ownership of the stock No
A graph of daily closing prices of securities is available at www.nseindia.com, www.bseindia.com. Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary
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Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;
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Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products

9 November 2017 10